KUWAIT CITY/DUBAI: Kuwait’s central bank revamped monetary policy tools yesterday by introducing new repurchase agreements as Gulf Arab oil producers stepped up efforts to boost bank liquidity and bolster investor confidence.
In the latest move by Gulf states to unthaw credit markets, Kuwait’s central bank said it would offer repo agreements with maturities of one day and one month from Wednesday, in addition to the one-week repo it had offered previously.
Endeavouring to calm investors, Kuwait this week asked its sovereign wealth fund to invest in stocks, as Bahrain looks to improve deposit guarantees and UAE committees meet on how to tackle the world financial crisis.
Kuwait plans to pump about $12bn if required into the country’s stock market in an effort to avoid an economic downturn in the Gulf’s third-largest Arab economy, an official said.
The country’s sovereign wealth fund, the Kuwait Investment Authority, will anchor plans to buy up to 10% of the value of stocks traded on the Kuwait Stock Exchange as part of the bailout, said Abdulmajeed Al Shatti, who sits on a government committee dealing with the financial crisis.
The bailout is the latest effort by Kuwait’s government to restore confidence in the country’s economy after a plunge in its main stock index forced the suspension of trading for two days last week.
Al Shatti, also chairman of Commercial Bank of Kuwait, told Zawya Dow Jones yesterday in a phone interview that the fund aims to “stop the panic and boost the liquidity of investment companies.” He didn’t say whether the Kuwait Investment Authority (KIA), will divest foreign assets to finance the new fund.
A spokesman for the KIA, estimated to have about $200bn worth of assets, declined to comment when called.
Kuwaiti shares, down more than 30% this year, led gains on some Gulf markets on Wednesday as investors took the central bank’s move as a cue the state would keep taking an active role at stabilising the market.
“The fear of liquidity is no longer there in the market,” said Arunesh Madan, vice president of treasury at Kuwaiti investment bank Global Investment House.
“This means the central bank will provide enough liquidity to banks, so the business of lending which banks usually do on a day-to-day basis will continue.”
Analysts said the central bank had deliberately set the new rates well below levels on the interbank market to help channel funds into that the market, driving down rates.
The central bank set the overnight repo rate at 1%, the one-week rate at 2% and a one-month rate at 3%. The one-month Kuwait interbank offered rate was 3.1% on Wednesday.
“The reduction in the repurchase rates is aimed at reducing the attractiveness of placing deposits in the central bank, so as to boost liquidity in the interbank market,” EFG-Hermes economist Monica Malik said in a note.
Kuwait’s central bank governor said the bank had introduced the new repo agreements to give banks more flexibility in managing their assets and liabilities. – Reuters, Zawya Dow Jones |
